How to Run a More Profitable Bar: Do It by Controlling Overhead

Now that you can find a well-made cocktail just about anywhere, the American bar scene has become ever more saturated and competitive. And with new minimum-wage standards being implemented across the country and rents continuing to rise in cocktail capitals like New York and San Francisco, bar owners are often paying a much prettier penny for a smaller slice of the pie.

So what can bar owners do to mitigate the soaring cost of real estate while still guaranteeing quality at a competitive price, providing their employees fair wages and benefits and, of course, turning a profit?

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Well, before you jack up your menu prices, consider first tackling and controlling your overhead. After all, they say every dollar saved is two dollars earned.

“Determining the small changes you can make that won’t affect quality is very important,” says Rael Petit, the beverage director at The Williamsburg Hotel in Brooklyn, New York. “This way, you can cut costs, and they will add up internally, but the changes won’t be noted externally.”

Liquor Purchases

Cost of liquor varies greatly between regions and states, but generally speaking, strategic thinking and advance planning during the buying phase is key in the long run. Oftentimes, this requires cultivating a strong network of distributors and importers and using insider knowledge to time purchases to opportune moments.

For example, products that are new to the market often come with a discount. And buying in bulk, or at least meeting the minimum price, can save you from cumbersome delivery fees.

“Reducing overhead costs without cutting corners is every manager’s and bartender’s objective,” says Robert Mahon, the owner of NYC’s Toro Loco restaurant. “From a manager’s perspective, this can include tactics like developing strong brand relationships and buying in bulk.”

Melissa Beaugrand, the food and beverage manager at JW Marriott Chicago agrees: “Often, there are purveyor specials that we like to take advantage of—for instance, buy three cases of one spirit and get one half off.”

Menu Planning

Once she has ordered product at an advantageous rate, Beaugrand then maximizes each item during the menu development phase. At her hotel, a regularly rotating menu of drinks offers opportunities to make the most of each order.

“We are very lucky to have a menu that changes every 12 weeks,” says Beaugrand. “When we have one drink that uses more costly ingredients, we balance the other items on the menu for that cycle to support it by cross-utilizing ingredients and choosing ingredients that are in season.”

Kitchen Supply

Creating drink specials to exhaust surplus supply is also an excellent way to minimize loss due to waste. For venues that have food programs, tapping into pantry ingredients is beneficial for both the kitchen and the bar.

“It’s a good idea for bartenders to work closely with the kitchen to utilize the same ingredients,” says Johnny Livanos, the owner and general manager at Ousia in New York City. “My kitchen uses a lot of lemon juice, so we make sure to save the zests for everything from liqueurs to syrups.”

Sales Analysis

While these simple tricks are common-sense ways to reduce waste and move product, truly understanding the revenue-to-cost efficacy of your menu requires an in-depth analysis of your sales. Even the most creative bartender must take numbers into consideration. Make sure you know what—and when—you’re selling the most.

“Things that I would look at first are staffing, sales reports and competition. When diving into these areas, you might find that it makes sense to tweak the hours of operation,” says Beaugrand. “If your first hour of sales is the best and your last hour of sales is the worst, maybe you open a bit earlier and close a bit earlier if your foot traffic is higher in the earlier part of your day.”

Examining your sales record will also reveal the items with the highest profit margin, as opposed to those that are not cost-efficient. Beaugrand says to use a clear data-driven approach to leverage this information creatively and craft menus that give you the biggest bang for your buck.

“Develop a formula,” says David Mor, the beverage manager at Cindy’s in Chicago. “Plug each component of the cocktail into a spreadsheet that accounts for the amount it takes to make the drink, and its cost,” says Mor. “The biggest mistake is not taking into account the spills, mistakes and overpouring. Give yourself an honest pillow adjustment to account for these situations.”

Staff Training

And while human error should be accounted for, it can also be prevented to an extent. Investing in adequate training ensures that your bar staff not only executes quality drinks but also exercises mindfulness of cost. This can range from drink building, like using measuring devices as opposed to free pouring, to ergonomics, which can reduce spillage and breakage within your bar space.

“If you’re running your business effectively, you’ve already located the places where most glassware is broken or damaged,” says Beaugrand. “Think outside of the box to fix these problem areas. This, constant training and reminders to the staff are the keys to managing breakage.”

Technology and Tools

From a design perspective, Tobin Ellis, a hospitality design specialist and the author of the forthcoming book “The Hospitality Gene: Mastering High-Volume Hospitality,” recommends also investing in better technology and tools behind the bar.

“Reducing overhead isn’t just about cutting cost of goods,” says Ellis. “In fact, that might be the hardest metric to attack if you’re trying to maintain quality and consistency. From designing ergonomic and hyper-efficient bar engines to installing self-circulating draft cocktail systems, there are so many ways to building smarter, more profitable bars. Any technology or tool that helps bartenders make better drinks faster should be looked at carefully. If it’s a solid piece of tech, the return on investment is always there.”

Hospitality and Competition

Of course, at the end of the day, the best defense is a good offense. Quality cocktails and strong hospitality will encourage repeat guests, increase sales and give bar owners more flexibility, both in terms of moving product and adjusting prices.

“If your neighbors are running successful promotions—compete!” says Beaugrand. “Do it better than they are, but stay true to your brand. Look at what you offer that’s unique or exceeds expectations. These things can be priced as such with a higher margin. As always, sales fix everything—budgets are a lot easier on the eyes and pocketbook with more money coming in the door.”